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You have to take your downpayment into account. You can have a couple making $100K a year, trading up, but walking away with $150K equity to roll into the next home - so they can afford more than $250K. I would say with the average downpayment - 2.5 or below is ideal.
I'm pretty sure the OP was talking income in relation to the amount financed.
Of course if you have a pile of cash to sink into a property you can buy a more expensive home.
The fundamentals should still apply as far as loan to income ratios though.
And if you're referencing my post about CA prices... yes, I understand that folks who got in before prices spiraled out of control can afford to live there, trade up, etc.
But anyone trying to buy in at todays prices at anything close to todays average salary is in big trouble without that extra pile of cash.
I'm pretty sure the OP was talking income in relation to the amount financed.
Of course if you have a pile of cash to sink into a property you can buy a more expensive home.
The fundamentals should still apply as far as loan to income ratios though.
And if you're referencing my post about CA prices... yes, I understand that folks who got in before prices spiraled out of control can afford to live there, trade up, etc.
But anyone trying to buy in at todays prices at anything close to todays average salary is in big trouble without that extra pile of cash.
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yeah, i kinda figured the OP was talking about loan, not purchase price, but wanted to make sure
i wasn't referencing your post at all. here in NJ it's same - high housing prices (coupled with crazy property taxes) makes homeownership for a lot of first time buyers out of reach. but then I look at my parents, who didn't own a home until age 45, and figure those who can get a house earlier are fortunate!
Fannie Mae's guidelines are 28/36. For example: Monthly Gross Salary is
1000.00.
You would multiply 1000 by 28% = 280
This number will be the HIGHEST you should look to pay in a 'mortgage payment' (payment includes principal, interest, taxes, insurance, PMI)
36 is used to add up ALL of your debt plus the mortgage payment.
$360.00 will include any debts that is being reported on your credit report.
Some lenders may go up to 40/65%, but you have to remember that this is GROSS income...not net income. Which makes it worse.
I like those guidelines, but I wouldn't look at homes that expensive. We'll be looking for homes between 130-160K. Using 28% of our projected net income, those guidelines recommend a ceiling of $217K. I'm much too riff-raff for that.
Quote:
Originally Posted by Go Blue 99
For those of you that use a much lower ratio- what do you do with the rest of your money? If you're financially prudent enough to follow a low income guideline, I assume you probably don't have big car payments, crazy credit card debt, etc.
Like I previously mentioned, we are looking to buy a year from now. Here is where our income goes now while I'm not working. The only changes we foresee when I start working is to put my entire net towards the home or a combination of home/MM account and possibly replace rent costs with a new car payment.
We looked at some million+ dollar tract homes just last weekend in Orange County, CA
It's hard to fathom how anyone could stay within those guidelines if trying to buy at current RE prices there.
For example a quick search of Mission Viejo and Rancho Santa Margarita (actually on the affordable side as OC goes) might get your $100,000 a year couple into a 1 bedroom 1 bath condo or townhouse in the 450 - 800 sq ft range. No single family homes came up for $250,000 or less at all.
Yet as far as I can tell, the average household income in the county is actually below your $100,000 number.Go figure.
We have pushed the envelope getting into a house in the past, but we've always been within your suggested 2.5 ratio or better within 2-3 years. Sometimes that first year or two has been darn tight financially though!.
That is why we are moving away from here! We currently rent in Aliso Viejo and we were sure that by 2008 we will be buying a house here, but like you said, you get very little for much $$ and it is so not worth it. The houses that we were looking here were about $750K and not that big either: 3 bed (tiny), 2 bath, a backyard of the size of a patio and hey! we can almost say that the neighbors would be living with us too since the houses have no space between each other and the windows are overlooking your neighboor's! So we decided that to get the life we want we will have to move. We have two kids and we found a great place with a great school system and the houses are just amazing! Big and affordable!
we purchased in 1998. 3 times our income. closed, 2 weeks later we both got laid off. welcome to the wonderful world of home buying. Thankfully we both found new jobs right away and within 3-4 years our salaries increased putting us at 2 times. We used our current income at the time of purchase to decide on how much to spend and we did NOT go by what the bank said we could afford which was a lot higher. We also put 20% down.
I like those guidelines, but I wouldn't look at homes that expensive. We'll be looking for homes between 130-160K. Using 28% of our projected net income, those guidelines recommend a ceiling of $217K. I'm much too riff-raff for that.
Like I previously mentioned, we are looking to buy a year from now. Here is where our income goes now while I'm not working. The only changes we foresee when I start working is to put my entire net towards the home or a combination of home/MM account and possibly replace rent costs with a new car payment.
After you buy (at least for the first year or two) you might as well just put that 8% from restaurants right towards house because things come, problems with the house need fixing, stove breaks, furnace stops working, water tank breaks, roof leaks, oh the list goes on and on and on (just like the energizer bunny).
After you buy (at least for the first year or two) you might as well just put that 8% from restaurants right towards house because things come, problems with the house need fixing, stove breaks, furnace stops working, water tank breaks, roof leaks, oh the list goes on and on and on (just like the energizer bunny).
I hope not. We plan on buying something less than 3 years old.
I'm not saying things don't happen, but I would hope it wouldn't be that common with a newer home.
After you buy (at least for the first year or two) you might as well just put that 8% from restaurants right towards house because things come, problems with the house need fixing, stove breaks, furnace stops working, water tank breaks, roof leaks, oh the list goes on and on and on (just like the energizer bunny).
That is the advice we've gotten from both sides of the family plus numerous friends So many people we know have "funny" stories the first few years when they owned their homes & just all the stuff that happens & just comes up...a $1,000 here; $250 there; another $750 here; and then $75....it just adds up!
I hope not. We plan on buying something less than 3 years old.
I'm not saying things don't happen, but I would hope it wouldn't be that common with a newer home.
Beware of new homes! Make sure you are in a good development with reputable builders. Most newer homes have been built quick & most during the boom when it was a matter of speed rather than quality. My brother bought a 1 yr old $650k home & a pipe in the wall burst 3 weeks after he took possession
While they come with warranties, etc. just keep in mind, newer isn't always better.
Hope you are looking for quality of the home & sound structure. A lot of brand new homes are overpriced due to people liking "brand new". Bells & whistles are just that...bells & whistles.
And things ALWAYS happen..no matter if new or old
We put about 20% down and mortgage to gross income was probably around 2.3
I agree about "New" and "Newer" we looked at homes that were only 3-4 years old and the cheapo carpeting, cabinets, molding, tile, faucets all were showing signs of needing replacement.
We wound up buying a house that was about 20 years old. The bannister and railings are oak, the other wood work is hardwood....not pine or painted plastic. The doors throughout the house are SOLID not hollow etc etc etc.
Sure, I have replaced a fair amount of stuff that was older (faucets, range top etc.) but I knew all that going in.
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We currently rent in Aliso Viejo and we were sure that by 2008 we will be buying a house here, but like you said, you get very little for much $$ and it is so not worth it. The houses that we were looking here were about $750K and not that big either: 3 bed (tiny), 2 bath, a backyard of the size of a patio and hey! we can almost say that the neighbors would be living with us too since the houses have no space between each other and the windows are overlooking your neighboor's!
So we decided that to get the life we want we will have to move. We have two kids and we found a great place with a great school system and the houses are just amazing! Big and affordable!
So many people we know have "funny" stories the first few years when they owned their homes & just all the stuff that happens & just comes up...a $1,000 here; $250 there; another $750 here; and then $75....it just adds up!
